Analysis: GE and MHI both to gain from end to five-year patent dispute

UNITED STATES: The recent end to a five-year war over intellectual property (IP) between GE and Mitsubishi Heavy Industries (MHI) came soon after the US Patent Office invalidated a GE patent for zero-voltage ride-through (ZVRT) technology.

Known as ‘705, the patent was overthrown on 3 December after an 11-month appeal by GE, one of the world’s largest wind turbine manufacturers.

"I believe this is what forced GE’s hand to settle," said Philip Totaro, an intellectual property (IP) strategist and engineer. In summer 2013, a Texas judge backed GE in a suit regarding the widely applicable ZVRT technology and fined MHI $170 million for patent infringement. But the US Patent Office’s December decision on ’705 negated that win and made the fine unenforceable, said experts.

While the terms of the two firms’ settlement, announced on 15 December, are confidential, it has been revealed that it includes cross-licensing of wind technology. Tokyo-based MHI said in a statement that the settlement will have "negligible impact" on its earnings in the current fiscal year, ending 31 March, and that it will not revise its earnings forecast.

A GE spokesman, declining to answer specific questions, stated briefly: "GE and MHI mutually agreed it's in the best interest of the two companies to come to a settlement agreeable to both sides. This settles all ongoing wind-technology disputes between GE and MHI."

GE retains an unusually strong IP portfolio, with around 1,300 patents, of which about 165 seem broad enough to be contenders for cross-licensing, according to IP strategists Totaro & Associates. MHI has about 500 wind-technology patents, of which 60 appear ripe for cross-licensing.

The end of this sprawling IP battle should benefit both firms. GE has been dominating the US wind market and may no longer see MHI as a threat. It has no clear reason to keep up a potentially costly legal fight, and Mitsubishi will have something to gain from ending this distracting fight, said Justin Wu, head of wind analysis at Bloomberg New Energy Finance (BNEF). When the dispute started, the US had been MHI’s largest wind market.

"Overall the industry is likely to view GE’s patent enforcement as successful, fostering respect for its patent portfolio," said Larry Kass, a partner at New York law firm Milbank, Tweed, Hadley & McCloy. MHI is hardly a weak party, however, he added: "My perception is that Mitsubishi highly values its own patent portfolio, so I expect it would not grant GE a license without a significant concession [of licensing] in return."

The multi-pronged $1-billion-plus struggle included six court cases, from Florida to California. A trial at the US International Trade Commission (ITC) at one point even led to a ban on US imports of MHI’s 2.4MW turbine. The dispute also encompassed GE’s key technology for LVRT and an MHI patent for blade pitch. Both ZVRT and LVRT help wind turbines stay online during grid instability, especially crucial in fast-developing markets such as China. In fact, in many countries nowadays, grid operators require LVRT.

During one suit, MHI said the fight had spooked potential customers so much that its American sales had dropped from $2 billion yearly to almost nil. In Arkansas, MHI completed — then mothballed — a $100-million plant for assembly of its 2.4MW machine.

In 2008, Mitsubishi represented 3.7% of all US turbine orders, compared with 39.6% from GE. MHI peaked in 2010 with 9%. MHI looks set to report no turbine orders for 2013, with none planned for 2014-15 either. By mid December, GE had 85% of the US market share.

Interestingly, MHI’s contraction in the US followed some of GE’s favourable legal rulings in 2012, noted BNEF’s Wu. But whether it could return to the US market depends on the settlement terms which, for all we know, could have required MHI to withdraw from the US — although this is unlikely, he said.

Cross-licensing can involve the company with the weaker IP portfolio paying a fee to the other firm, and it is not uncommon for these to be renegotiated every five to ten years.

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